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Abstract

We study differently framed incentives in dynamic laboratory buyer-seller relationships with multi-tasking and endogenous matching. The experimental design tries to mitigate the role of social preferences and intrinsic motivation. Absent explicit incentives, effort is low in both tasks. Their introduction boosts efficiency substantially increasing effort in the contractible task, mildly crowding it out in the non-contractible one, and increasing buyer surplus. Bonuses and penalties are equivalent for efficiency and crowding-out, but different in distributional effects: sellers' surplus increases with bonuses as buyers' offers become more generous. Buyers tend to prefer penalties, which may explain why they are dominant in procurement.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0105.

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Length: 41 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:pad:wpaper:0105

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Related research

Keywords: bonuses; business-to-business; contract choice; experiment; framing; explicit incentives; incomplete contracts; loss-aversion; motivation; penalties; procurement; multi-tasking; relational contracts; rewards.;

Other versions of this item:

Find related papers by JEL classification:

• H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
• C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
• L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
• M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

This paper has been announced in the following NEP Reports:

• NEP-ALL-2010-01-23 (All new papers)
• NEP-CBE-2010-01-23 (Cognitive & Behavioural Economics)
• NEP-CTA-2010-01-23 (Contract Theory & Applications)
• NEP-EXP-2010-01-23 (Experimental Economics)

References

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Cited by:

1. Eva I. Hoppe & David J. Kusterer & Patrick W. Schmitz, 2011. "Public-private partnerships versus traditional procurement: An experimental investigation," Cologne Graduate School Working Paper Series 02-02, Cologne Graduate School in Management, Economics and Social Sciences.
   
   • Hoppe, Eva I & Kusterer, David J & Schmitz, Patrick W, 2010. "Public-private partnerships versus traditional procurement: An experimental investigation," CEPR Discussion Papers 8167, C.E.P.R. Discussion Papers.
2. Daniele Nosenzo & Theo Offerman & Martin Sefton & Ailko van der Veen, 2012. "Discretionary Sanctions and Reward in the Repeated Inspection Game," Discussion Papers 2012-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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